While the phrase “disappointing holiday” might have been enough in the past to turn potential investors away from a stock, these days, it's actually cause for celebration in that it wasn't worse. Nordstrom (NYSE:JWN) did indeed have a disappointing holiday as previous holidays go, but the news was far from all bad, and may well give some new hope to those who were expecting Nordstrom to fold altogether.
Not the Best Holiday
Nordstrom did indeed turn in a disappointing holiday season, with a sales decline of 22% against last year's sales figures. The biggest trouble was a familiar one, as Nordstrom had a hard time getting COVID-wary shoppers to go traipsing about the stores, looking around, trying things on and seeing what might be of interest.
However, even as sales dropped for the company's physical stores, online shopping factors proved that shoppers weren't tired of Nordstrom altogether. Digital sales were up 23% against levels seen in 2019, accounting for just over half—54%—of all of Nordstrom's sales for the period. Last year at this time, online shopping was just over a third—34%—of Nordstrom's total. With over 30% of customers' online orders fulfilled directly at the store level, that offered some insight into how brick-and-mortar can continue to survive in the face of an increasingly online world.
Further, the company expects the reasonably positive news to continue up through its upcoming investor event on February 4 and its fourth-quarter numbers report March 2. Earnings before interest, taxes (EBIT) look to hold positive up through the events, and fourth quarter operating cash flow should stay positive as well. However, reports suggesting the EBIT numbers would slip 5% instead of an expected 3% left some nervous.
Analysts Join the Hesitant Shoppers
The larger analyst community, meanwhile—based on our latest research—is a little on the skeptical side, but only a little. The company has been considered a “hold” for the last six months, and the ratios in getting there have changed little in that entire time frame. Six months ago, the company had four “sell” ratings, 11 “hold”, and two “buy.” Three months ago, it was the same thing. A month ago, the company lost two “holds” and gained one “buy”, which was a fairly positive outcome, but today, one of those “buy” ratings has left the fold, leaving us at four “sell”, nine “hold” and two “buy.”
The price target, meanwhile, has been recovering since losses seen three months ago. Six months ago, the company price target was $30.40. It dropped to $26.53 before recovering to $27.35 and then to $28.13, where it sits today. Given that the stock is trading at $36.14 as of this writing, it's clear there's some disconnect between target levels and current. Indeed, three analysts—Credit Suisse Group, JPMorgan Chase & Co., and KeyCorp—all hiked their price targets just today, and most by a pretty wide margin, too. Credit Suisse, for example, went from $26 to $39.
Is The Worst Over?
The one thing you can say for Nordstrom is that it has quite thoroughly embraced the ethos of a “majority-digital” company. With a clear majority of its sales made online, and its brick-and-mortar shops now serving as support and fulfillment with a side of sales, it's perhaps showing us how physical retail can continue to survive into a new generation of retail. That alone makes Nordstrom a compelling case for investors. Granted, some of the metrics aren't exactly looking great for Nordstrom right now, but there are certainly extenuating circumstances to consider here. We're seeing Nordstrom pick up value, and this in a very challenging retail environment.
Sure, Nordstrom would have been better off if it had more closely embraced online shopping back before the pandemic forced its hand, but the point is, the company did eventually pick up the threads and put them to work accordingly. Additionally, Nordstrom has an excellent image to its credit; the company is considered upscale shopping, and if that perception can carry on into its online shopping growth, the company has a solid potential to keep most of its present position.
So for those who already have Nordstrom stock, don't get rid of it; the company's turnaround may be closer to hand than some expect. It's certainly not likely that the company will buckle altogether; the online shopping component is holding up too nicely to evoke that dire a prediction. The worst may be behind Nordstrom, but reclaiming its top-notch status is likely to take a while, especially given all the competition out there.
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